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    Global Research Market Lost Over 7,500 Years of Experience since MiFID II

    Written by Nathan Hyatt | March 8, 2021
    Substantive Research analyst mapping study examines the juniorisation of analyst research across the US and Europe

    London, 8 March 2021: Substantive Research,  the research discovery and research spend analytics provider for the buy-side, today published findings of its latest study analysing the juniorisation of analyst research, which began with the implementation of MiFID II in January 2018. The analyst mapping exercise provides evidence that the research market globally has lost over 7,500 years (net) of analyst experience in the last three years. 

    The study was carried out using Substantive Research’s Analyst Mapping tool, which allows asset managers to gain an aggregated view of banks’ analyst moves, their seniority and sector coverage of relevance to them. Managers can clearly see which brokers are investing or disinvesting in experienced analysts covering the sectors and asset classes pertinent to their strategies and allocate their research budgets more efficiently, to ensure the quality of research is maintained.

    In its first analyst mapping report published in November 2020, Substantive Research found that since MiFID II came into effect, in proportionate terms, European brokers have shrunk their analyst teams at least three times more than their US counterparts. There has been a 12% loss of analysts in Europe vs a 4% loss in the US, as buyside budgets and research pricing have decreased globally but more significantly in Europe. Furthermore, in December 2020 Substantive Research also published research showing that the value of analyst meetings had fallen by 47% since COVID-19 had hit the market. 

    In this second analyst mapping study, Substantive Research specifically focused on the experience levels of the analyst teams – as analyst tenure is a key factor in delivering research quality – and how this has changed since January 2018.  

    The latest analyst mapping study findings include:

    • European brokers and banks lost net 3,074 years of experience since MiFID II came into effect, whilst US brokers and banks lost net 4,606 years of experience. The US universe of analysts in the study was 1.8 times larger than the European universe, showing that the effect amongst European firms is more pronounced.
    • The experience levels of analysts lost to banks and brokers in the three year period averages out at just under 7 years per analyst, whereas the average experience levels for those gained is just under 2 years.
    • The drain in experience from the research market has begun to stabilise in 2020, with the loss slowing to 928 years over the twelve-month period.
    • When comparing banks with their research-driven premium broker competitors in the research market, the experience drain is very different, with US and European banks losing 6,287 years of experience compared with premium brokers losing 1,393 years of experience.
    • The picture varies significantly if you look at each research provider. For example, one provider X has a net gain of 17 analysts since MiFID II came into effect, versus a competitor Y that has a net loss of 138. If you look at experience levels (to check if the provider with the net gain has hired junior or senior staff), provider X has actually lost only 50 years of experience compared to provider Y’s 1328.

    In this study, the sample size of current active analysts is 5,300, taken from the largest and most prominent banks and premium brokers, who command approximately 60% of average research budgets.

    Mike Carrodus, CEO of Substantive Research, said: 

    “Whilst we see a significant reduction in the analyst experience levels that the wider market is providing, when you look individually, broker by broker, the picture varies dramatically. It is clear that some firms have used MiFID II and COVID-19’s structural shocks to the research market as an opportunity to gain market share, which is paying dividends for them already.”

    Carrodus added: “It’s only by understanding the experience levels that these analyst teams represent, as well as their staffing numbers, that asset managers can align with the providers committed to offering high value, differentiated research in the areas they require. When asset managers combine this with an understanding of research pricing trends, they can truly maximise the value of their significant research budgets.”